Overview on geothermal market
In the context of transition to carbon neutrality, emerging markets such as Carbon Capture, Utilization & Storage (CCUS) and geothermal are now essential to move towards low carbon energy sources, to activate energy efficiency levers and to participate in restoring forests or utilize carbon capture technology.
Geothermal is raising a particular interest among decision-makers as it is applicable on a large scale with multiple end uses (electricity production, heating and cooling of buildings and industrial use) with a high efficiency (on average, a geothermal heat pump generates 4 kWh of heat for 1 kWh of electricity consumed) and a low carbon footprint.
It is the right time to explore opportunities on this market
The geothermal energy market reached $62.5B in 2022 and should reach $95B in 2030, at a 6.3% annual growth rate. This market is currently strongly driven by the context of rising electricity & energy costs and the global transition to low-carbon energy sources – as such, it is widely expected to see rapid growth in the coming decade.
Several countries have recently enacted policies, and many subsidies will be released in the coming years to fuel the energy transition. Moreover, the EU plans to double its capacity by 2030.
As such, historical actors and new challengers are moving forward to seize opportunities on the emerging geothermal market.
Geothermal is still a fragmented market under construction, mainly driven by government initiatives & subsidies
The value chain consists of six distinct steps where vertical integration, innovation and ecosystem creation are the main trends:
- Vertical integration from major players on core equipment: due to a highly fragmented market, major players such as Ormat or Celsius Energy are adopting inorganic growth strategic to have an expansion of their capabilities and to be able to innovate in the field of geothermal exploration.
- Innovative technologies and digitalization of the energy sector: The development of improved geothermal systems is a key factor to ensure energy decarbonization. Actors investing in breakthrough technologies, such as Eavor and its multilateral closed-loop geothermal system, are aiming at gaining significant market share in the years to come while increasing their competitive advantage as a first mover in the industry.
- Partnerships to create broader ecosystems: With the growing demand of renewable energies, major players are coming together to create partnerships to create integrated offers or ecosystems driving the overall cost down. As such, Power Purchase Agreements (PPA) are a common way to sharing both risks and rewards.
The conditions for success
From the value chain analysis, three key success factors can be identified:
- Build capability to identify, characterize and get the license to operate in suitable areas for geothermal.
- Anticipate, locate & leverage on government incentives to maintain economic feasibility.
- Build a strong assessment of the project’s feasibility – poor assessment of the technical/economical feasibility of geothermal projects is one of the biggest root causes of their high failure rate.
However, there are some roadblocks to be considered. These are similar to other emerging markets such as the CCUS market:
- Inexperienced industries: compared to mature industries, there is little experience developing geothermal facilities. This results in investors applying a risk premium, significantly increasing the cost of capital required. Further R&D is required to improve process efficiency and to advance the technology.
- Infrastructure needs: retrofitting current technology on various facilities is a difficult and expensive process. Current transportation techniques are underdeveloped and require large infrastructure investments to take advantage of economies of scale.
- Regulatory uncertainty: strong momentum for geothermal regulations exists but have not been adopted globally. Safety requirements and liability policy are two aspects that must be clarified, particularly concerning seismic risks.